1) A progressive reduction in the price level. This would make real interest rates exceed nominal interest rates, which might make it impossible to lower nominal interest rates during a slump sufficiently to make real investment appear profitable. This is known as the liquidity trap.

2) A reduction in activity due to lack of effective demand. This could be brought about deliberately by the monetary authorities in order to reduce inflationary pressure, or could occur through a collapse in confidence which the authorities were unable to avert.

See also:

debt deflation

• consultant
• consumer
• consumer behaviour
• consumer borrowing
• consumer choice
• consumer confidence
• consumer credit
• consumer debt
• consumer durables
• consumer expenditure
• consumer goods
• consumerism
• consumer non-durables
• consumer price index
• consumer protection
• consumer rationality
• consumer sovereignty
• consumer surplus
• consumption
• consumption externality
• consumption function
• consumption goods
• consumption possibility line
• contagion
• content, local